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Don't Buy Banc of California, Inc. (NYSE:BANC) For Its Next Dividend Without Doing These Checks

Simply Wall St

Banc of California, Inc. (NYSE:BANC) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 13th of September to receive the dividend, which will be paid on the 1st of October.

Banc of California's next dividend payment will be US$0.06 per share. Last year, in total, the company distributed US$0.24 to shareholders. Looking at the last 12 months of distributions, Banc of California has a trailing yield of approximately 1.6% on its current stock price of $14.85. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Banc of California has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Banc of California

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Last year, Banc of California paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NYSE:BANC Historical Dividend Yield, September 8th 2019

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Banc of California's earnings per share have dropped 11% a year over the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Banc of California has seen its dividend decline 11% per annum on average over the past 10 years, which is not great to see. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.

Final Takeaway

Should investors buy Banc of California for the upcoming dividend? Not only are earnings per share shrinking, but Banc of California is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Curious what other investors think of Banc of California? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.